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Kenyan Inflation Rate Slows to 3.1%, Raising Prospect of Interest Rate Cut

Kenya’s inflation slowed to 3.1 percent in October, increasing the likelihood of further interest rate cuts.

The inflation rate in East Africa’s biggest economy fell from 3.2 percent a month earlier, the Kenya National Bureau of Statistics said in an e-mailed statement from the capital, Nairobi, today. The government’s target rate is 5 percent. Prices rose 0.1 percent in the month.

“Inflation looks set to plumb new lows,” and the central bank “can probably cut further,” Aly-Khan Satchu, a Nairobi- based independent financial analyst, said by e-mail before the announcement. The falling cost of calls on Kenya’s mobile networks is a key reason for the drop, he said.

Kenya’s Monetary Policy Committee has slashed the benchmark lending rate by 2.5 percentage points since 2009 to a record low of 6 percent. Low inflation could help justify further cuts, adding to pressure on commercial banks to reduce the cost of credit, Central Bank of Kenya Governor Njuguna Ndung’u said on Oct. 25.

Kenyan banks’ average lending rate was 14 percent in September, according to central bank data. The lenders have more scope to reduce borrowing costs to businesses and households, Ndung’u said on Oct. 28.

Kenya’s economy is projected to grow 6 percent next year from an estimated 5 percent this year as a new constitution approved in August bolsters investor confidence, President Mwai Kibaki said on Oct. 21.

Agricultural production, which accounts for a quarter of the economy, is increasing after rainfalls early this year ended a drought lasting more than two years.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net.

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